Pricing Strategies in Marketing

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Questions and Answers

What is one condition necessary for price differentiation to be effective?

Barriers to entry exist. (correct)

Customers are aware of the price differences.

All customers buy from the cheaper market.

Products are identical in every market.

Absorption target pricing includes both variable and fixed costs.

True

What formula represents absorption target pricing?

VC + FC + NP

Price differentiation aims to maximize _______ in different markets.

revenue Signup and view all the answers

In the example provided, what was the variable cost per chair?

$20 Signup and view all the answers

In absorption target pricing, NP represents _______.

Net Profit Signup and view all the answers

How much did the Green Spiders buy each soft drink for?

$8 Signup and view all the answers

Match the following pricing terms with their descriptions:

Price Differentiation = Charging different prices in different markets Absorption Pricing = Setting price to cover fixed and variable costs Variable Cost = Cost associated with producing each unit Fixed Cost = Costs that do not change with production volume Signup and view all the answers

What is a disadvantage of absorption target pricing?

It doesn’t consider competitors’ actions. Signup and view all the answers

Marginal cost pricing can lead to lower prices when there is unused production capacity.

True Signup and view all the answers

What is the definition of marginal cost?

The cost of providing one extra (or one fewer) unit. Signup and view all the answers

Absorption target pricing is advantageous if your costs are _____ as a business.

low Signup and view all the answers

Which situation typically leads to an increase in the price under marginal cost pricing?

Last-minute large orders requiring non-bulk purchasing. Signup and view all the answers

Match the pricing strategy with its description:

Variable Pricing = Adjusting prices based on market demand Price Differentiation = Different prices for different customer segments Absorption Target Pricing = Pricing based on covering total costs Marginal Cost Pricing = Setting prices based on the cost of additional units Signup and view all the answers

What is a potential consequence of high costs when using absorption target pricing?

It can lead to uncompetitive pricing. Signup and view all the answers

What does the variable pricing strategy primarily involve?

Reducing prices to increase sales and increasing prices when nearing capacity Signup and view all the answers

A business can benefit from absorption target pricing even with high sales estimates.

False Signup and view all the answers

Price differentiation means setting the same price for all market segments.

False Signup and view all the answers

What strategy would you use to increase the price of a product when demand is high?

Variable Pricing Signup and view all the answers

Variable pricing can be used to _____ the price when there is an urgency to offload inventory.

reduce Signup and view all the answers

Which of the following is NOT a strategy for pricing discussed?

Underpricing Signup and view all the answers

Match each pricing strategy to its description:

Psychological = Setting prices that sound appealing to consumers Value = Pricing based on perceived value to the customer Skimming = Setting a high price initially and lowering it later Loss Leading = Selling a product at a loss to attract customers Signup and view all the answers

Absorption target pricing focuses solely on competitor pricing.

False Signup and view all the answers

In variable pricing, what happens to prices when supply is low?

Prices increase Signup and view all the answers

Study Notes

Variable Pricing

Flexible pricing strategy based on supply and demand
Lower prices when needing to quickly sell excess inventory (e.g., expiring products)
Raise prices when demand is high or supply is low

Price Differentiation

Charging different prices for the same product in different markets
Possible markets include different countries, demographics, or types of buyers
Requires customers being unaware or unconcerned about price variations
Requires barriers to entry, like tariffs or laws, to prevent consumers/competitors from purchasing the product in cheaper markets

Absorption Target Pricing

Sets price to cover variable costs, absorb fixed costs, and achieve a desired profit based on sales estimates
Formula: Absorption Target Price = Variable Cost + Fixed Cost + Net Profit
Example: A business selling 100 chairs at 20variablecost,20 variable cost, 20variablecost,1000 fixed costs, and a target net profit of 3,400resultsinanAbsorptionTargetPriceof3,400 results in an Absorption Target Price of 3,400resultsinanAbsorptionTargetPriceof64

Marginal Cost Pricing

Short-term strategy where price is set based on the cost of each additional unit, which may be higher or lower than the average cost
Focuses on the cost of producing one extra unit
Two primary situations:
Unused production capacity: Reduces price to near variable cost to utilize existing resources
Increased cost for supplying an extra unit: May increase price due to higher costs for additional units
Examples:
Reducing the price of oranges nearing their expiration date (variable pricing)
Filling empty seats on an airplane before departure (unused capacity)
Increasing the price of bottles to a customer who needs last-minute additional orders beyond their typical bulk order (increased cost)

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Description

This quiz covers various pricing strategies including variable pricing, price differentiation, and absorption target pricing. Understand how different approaches to pricing can impact sales and profit margins in a business context.

Pricing Strategies in Marketing

Podcast Beta

Questions and Answers

What is one condition necessary for price differentiation to be effective?

Absorption target pricing includes both variable and fixed costs.

What formula represents absorption target pricing?

Price differentiation aims to maximize _______ in different markets.

In the example provided, what was the variable cost per chair?

In absorption target pricing, NP represents _______.

How much did the Green Spiders buy each soft drink for?

Match the following pricing terms with their descriptions:

What is a disadvantage of absorption target pricing?

Marginal cost pricing can lead to lower prices when there is unused production capacity.

What is the definition of marginal cost?

Absorption target pricing is advantageous if your costs are _____ as a business.

Which situation typically leads to an increase in the price under marginal cost pricing?

Match the pricing strategy with its description:

What is a potential consequence of high costs when using absorption target pricing?

What does the variable pricing strategy primarily involve?

A business can benefit from absorption target pricing even with high sales estimates.

Price differentiation means setting the same price for all market segments.

What strategy would you use to increase the price of a product when demand is high?

Variable pricing can be used to _____ the price when there is an urgency to offload inventory.

Which of the following is NOT a strategy for pricing discussed?

Match each pricing strategy to its description:

Absorption target pricing focuses solely on competitor pricing.

In variable pricing, what happens to prices when supply is low?

Study Notes

Variable Pricing

Price Differentiation

Absorption Target Pricing

Marginal Cost Pricing

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